The Economy and CCRC Performance – Update

Recently (June 12), the Federal Reserve held its latest FOMC (Federal Open Markets Committee) meeting and decided to maintain the current Fed Funds rate within the range of 5.25% to 5.50%.  The reasoning remains the current position of the economy, inflation therein, signals that inflation is a bit more persistent, and that without more definitive signs of inflation abating, rate cuts are unwarranted.  My interest of course, is the implication of the economy on CCRC performance, rate policy included. Federal Reserve Board – Federal Reserve issues FOMC statement

Per the National Investment Center (NIC), CCRC occupancy has improved and remained, consistently strong. Entry fee communities are performing better than rental only communities, but only marginally so.

  • Entrance Fee CCRCs: Data indicates that in the first quarter of 2024, 90% of entrance fee independent living segments had an occupancy rate above 80%, marking the highest percentage among all care segments and payment types. Assisted living was a close second at 87%, followed by memory care at 83%, and nursing care at 73%.
  • Rental CCRCs: Assisted living segments reported an 81% occupancy rate above 80%, with independent living and memory care segments both at 77%, and nursing care segments slightly lower at 76%.

Not surprising, rent growth correlated to occupancy levels.  Where CCRC occupancy levels were higher, rent growth was more modest.  Conversely, where occupancy levels were lower, asking rents were higher.  The latter necessary to maintain margins and/or, to cover fixed expenses.

Regions with higher occupancy rates, such as the Northeast and Mid-Atlantic, have reported relatively smaller rent growth. Conversely, areas like the Southeast have experienced the highest rent growth, yet they have the lowest occupancy rates.

Numerous factors can impact occupancy levels and growth, including local market supply and demand dynamics, the range of options available to residents across different income levels, the particular property and its amenities, and how the unit’s value stacks up against area competition. However, this analysis indicates that asking rent growth is indeed a factor that can affect both average occupancy rates and the potential for occupancy growth or enhancements.

 With Federal Reserve policy stuck in neutral (6 quarters now) and the outlook remaining “higher for longer”, my interests from an outlook perspective, turn to the residential real estate market. Higher rates, translating to mortgage rates, and tighter lending conditions (credit access) have turned the residential market to nearly illiquid.  Buyers now are cash heavy or in some cases, investment firms.  Back in 2010, I wrote about similar economic conditions in the housing market and how the same impact CCRC performance –

For readers interested in the “geeky” economic stuff I look at from the Fed, I have posted the technical notes and forecast charts and data from the June FOMC meeting here: Fed June Economic Forecasts

Historically resilient to recessions, the senior housing and care sector is still grappling with the current high-interest rate climate. New development will remain subdued until borrowing rates decrease and capital becomes more accessible. However, the scarcity of new market entrants coupled with rising demand (due to aging demographics) suggests that occupancy rates will keep climbing.

Meanwhile, the transaction landscape is in a state of uncertainty, with acquisition opportunities mostly available to those with access to cash or non-traditional investors like private credit. The debt markets are facing challenges from stricter loan regulations and lenders managing distress within their portfolios.  For organizations managing non-fixed debt, repricing can present significant challenges as refinancing opportunities are not plentiful and the rate shock, can be significant. I have heard bits and pieces reports of bank lenders not wanting to renew credit facilities at the same terms (rate notwithstanding) – LTV, covenants, term of note, etc.

As readers and followers know, Fitch (ratings agency) maintains a negative outlook (per Fitch, deteriorating) for the CCRC/Life Plan industry. Back in 2023, Fitch detailed their concerns (economic) for the industry.  The summary is here: Struggles to Continue for U.S. Life Plan Communities as Possible Recession Looms (

My outlook is that the present real estate market (residential) is showing strong signs of illiquidity and the economy in general, is pointing more toward recession or stagflation than growth.  While the Fed may decide to cut rates in late 2024, a cut will be non-impactful, likely at .25%.  The translation is truly negligible in terms of realized rates and improvements in credit conditions.  Shorthand, rate incentives will remain key for occupancy.

Entry fee communities will see new residents struggle to sell their existing homes and net the proceeds required for the entry fee.  Commercial credit will remain tight and thus, new development will remain stagnant and so will the M&A activity.

More upcoming on the national real estate economy and its conditions.

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